Pound Edges Lower as US Treasuries Jump

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The British pound has extended its losses as GBP/USD has fallen for a third successive day. The pair has fallen below the 1.35 line in the European session.

US yields hit 2-year high

The US dollar has received a boost as 10-year yields have pushed above the 1.80% and touched a 2-year high. The 2-year yield also touched a 2-year high when it rose above 1% earlier in the day. The upswing is a reflection of market concern that the Fed will be more aggressive in its tightening. FOMC member Patrick Harker said last week that the Fed could raise rates three or four times this year, adding that inflation has been more persistent than previously expected. The CEO of JP Morgan, Jamie Dimon, went even further, saying that we could see six or seven rate hikes in 2022, due to surging inflation. The Fed is now in a no-comment “blackout” period ahead of next week’s policy meeting, so it will be interesting to see if yields continue to move towards the psychologically important 2% level.

The UK posted strong employment numbers, but the pound was unable to capitalize and move higher. Payrolls rose in December by 184 thousand m/m and wage growth came in at 4.2%, matching the estimate. Although wage growth remains strong, it has been overtaken by inflation, which hit 5.1% in November and could climb to 6% in the spring. Job vacancies continue to rise as businesses are short-staffed and are finding it difficult to find enough workers. Still, the latest job numbers show that the labour market is performing well and is a key driver of the UK recovery.

GBP/USD Technical Analysis

• 1.3560 is under pressure in support. Below, there is support at 1.3438
• GBP/USD faces resistance at 1.3776 and 1.3870